2022 was a year of unpredictability for all energy products across the globe. Propane, however, is an anomaly. We’ve experienced an ongoing decline (in comparison to diesel) in wholesale propane prices, even as we’re in the crux of the heating season.
For most of 2022, why did distillate prices bounce dramatically, but propane saw relative price stability? Propane inventories are higher than the five-year average and the highest they’ve been in five years.
Natural gas and propane generally follow each other in terms of pricing and supply since propane is a refined product of natural gas production. One reason to consider why propane prices are suppressed is that the Freeport LNG plant is still offline. Since being out of commission, two billion cubic feet of supply per day is being injected back into the stockpile. Once the LNG plant opens again, there is the potential for some immediate price reaction due to the natural gas being exported again. However, with propane inventories sitting 23% higher than in 2021, analysts feel as though propane is poised to remain low in cost.
Warmer-than-normal weather has also caused some relief in propane prices and demand. Propane sees an uptick in consumption in early fall for grain drying and harvesting and bores full steam ahead going into the winter months. To date, the current weather has comprised mostly mild weather, resulting in less propane demand, keeping products in surplus.
As we enter 2023 and head into the belly of winter, what should customers consider when looking for propane pricing? We suggest floating with the market, given the plentiful supply and less risk tied to fixing a price. Fixed prices have built-in premiums to hedge any upside risk, but with bearish signals in the market currently, customers can benefit from the market lows.
Futures for propane are still unknown due to a multitude of outside factors. For now, customers can take advantage of high inventory and low cost for their propane needs.
Written by Senior Business Development Manager, Will Muller.